China Communications Services Corporation Limited
FAQs

Hot Topics

Q1. What were the reasons for the significant enhancement in the results performance and
       the operating efficiency of the Company in 2015? In particular, why free cash flow
       increased by more than 300%?
In 2015, facing the complicated and ever-changing economic landscape, the Group upheld the management philosophy of "value-driven, seeking steady yet progressive growth and efficient development". We firmly captured the opportunities such as 4G network construction and optimization of the quality and speed of broadband in the domestic telecommunications operator market, continued to focus on the development of the two new markets - domestic non-operator market and overseas market, and achieved synchronous growth in revenue and profit. The Group recorded total revenues of RMB80,960 million, representing a year-on-year growth of 10.6%. Profit attributable to equity shareholders of the Company amounted to RMB2,334 million, representing a year-on-year growth of 8.6%. The gap between growth in revenue and profit was narrowed down. The cash conversion ratio was 2.0, representing an increase of 1.7 times compared to the corresponding period last year and showing a substantial improvement in the quality of profit.

We emphasized the "value-driven" appraisal principle and continued to enhance our effective management of accounts receivable, and the accounts receivable turnover days was 124 days, representing a year-on-year decrease of 8 days. Our free cash flow increased substantially to RMB3,573 million, representing a year-on-year increase of 328.8% and reached a historical high. The overall improvement in operating efficiency and sufficient funding resources provided strong endogenous power for the subsequent development of the Group.
Q2. While developing the CAPEX-driven business in the domestic telecommunications
       operator market, the Company has also developed OPEX-driven business proactively
       as another growth driver to support its continuous future growth, how was the
       development in 2015?
The Group has leveraged on both "CAPEX and OPEX-driven" businesses as the dual growth drivers to accelerate the development of domestic telecommunications operator market. The Group captured the vital opportunities of LTE FDD license issuance, upgrade and capacity expansion of telecommunications backbone network, broadband end-to-end speed upgrade, and revenue generated from domestic telecommunications operator customers amounted to RMB54,793million in 2015, representing a year-on-year revenue growth of 16.3%, accounted for 67.7% of total revenues and represented an increase of 3.3 percentage points compared to the corresponding period of last year. Among that, the revenue from China Telecom was RMB39,130 million, representing a year-on-year growth of 22.5% and accounted for 48.3% of the total revenues.

During the year, supported by the enlarged market share, proactive expansion in OPEX-driven business of the domestic telecommunications operators and the revenue contributions from China Tower Corporation Limited ("the Tower Company"), we overcame the impact from the decline of network construction investment of respective operator customer. Aggregate revenues from operator customers other than China Telecom maintained stable growth and amounted to RMB15,663 million, representing a year-on-year growth of 3.3% and accounted for 19.4% of the total revenues. The Tower Company became an important new customer and was the second largest contributor to the Group's revenue increase among the overall incremental revenue from all customers, making obvious contribution to the revenue growth of the Group. The Group has strengthened its market expansion in the domestic telecommunications operator market in northern China and established Inner Mongolia Autonomous Region Telecommunications Services Company Limited, striving for enhancement in the revenue contribution from the northern region.

Meanwhile, the Group reinforced its efforts in expanding the OPEX-driven business, and its network maintenance revenue from domestic telecommunications operator customers increased by 17.9% year-on-year. Growth of maintenance business maintained approximately 18% for two consecutive years, showing a rapid and steady growth momentum with optimized overall revenue structure.
Q3. Investment from the domestic telecommunications operators are expected to reduce
       in 2016, how would this impact the Company's business? How do you see the Company's
       development in the domestic telecommunications operator market, and also the overall
       development of the Company in 2016?
The PRC government is accelerating the supply-side structural reform which is going to unleash the benefits of reform gradually and bring new momentum for corporate development. The PRC government's initiatives of Cyberpower, Broadband China, Internet+, "One Belt, One Road" and Infrastructure Construction in New Form are offering enormous space for business development.

The Group will firmly leverage on the opportunities in the domestic telecommunications operator market, such as the construction and optimization of 4G network as well as the upgrade of broadband network, so as to lay a solid foundation for its operation. Meanwhile, we will focus on the operating expenditure of the domestic telecommunications operator customers and devote in the expansion in high value businesses such as integrated maintenance and logistics services, with a view to cultivate new growth momentum. We will leverage on the new cooperation relationship between the domestic telecommunications operator customers and capitalize on the preferential and non-competition arrangements with the Tower Company, strive to enhance our delivery capacity, service quality and service standard, so as to maintain existing competitive advantages and further enlarge our market share.

Other than the domestic telecommunications operator market, the Group has been devoted in recent years to the development in the other two markets - domestic non-operator market and overseas market, and believes that such markets will provide favourable growth momentum for its sustainable growth in future.

In respect of our domestic non-operator market, we will keep abreast of the pace of investment by the PRC government and focus on the informatization demand from customers in key sectors including government, transportation, electricity and construction. We will adhere to our "three-step" strategy (business replication, capability extension and informatization innovation), focus on opportunities of mobile internet, cloud computing, big data, internet of things and industrial internet of things, promote our six major group-level products and continue to acquire high value large turnkey projects. We will intensify our efforts in strengthening our marketing and collaboration mechanism to enhance our capability in market expansion and project delivery, and also pursue innovation in group-level products and external cooperation to enhance our market competitiveness.

The Group will focus on the informatization demands in regions such as Africa, the Middle East and South East Asia, and strengthen its cooperation with domestic telecommunications operators, "Going Abroad" state-owned enterprises, local governments and equipment vendors to embark on large scale "EPC+" projects. We will closely monitor the implementation of the "One Belt, One Road" Initiative and capture the opportunity arising from our "China-Africa Partnership Program in Trans Africa Information Superhighway" Project and accelerate our market expansion, with a view to excel and strengthen our overseas operation.
Q4. How was the development of domestic non-operator market in 2015?
In 2015, the Group proactively expanded the domestic non-operator market and achieved satisfactory results. Our sales and marketing mechanism for domestic non-operator market was initially established and revenue from such market achieved stable growth and amounted to RMB22,942 million, representing a year-on-year growth of 3.0% and accounted for 28.3% of the total revenues. Among that, development of key businesses such as construction of informatization projects and data centres achieved satisfactory growth with further optimization in revenue structure, laying a solid foundation for subsequent development.

The Group strengthened its promotion of the six major group-level products including smart city, smart security, smart industrial park, intelligent building, cloud computing construction services and e-certification, with a view to continuously enhancing the value of the projects. The Group has been devoted in the expansion of customers in sectors such as government, transportation, internet and information technology, construction and property, and electricity, and won certain high value projects, including overall integrated network planning, construction and commissioning for "Second World Internet Conference" in Wuzhen, highway informatization system development in Hunan Province, smart security project in Binjiang District of Zhejiang Province and construction of data centre for Tangshan World Horticultural Exposition. Currently, annual contracted revenue generated from customers in sectors such as government, transportation, electricity, construction and property sectors exceeded RMB1 billion.
Q5. How was the performance of overseas market in 2015?
In 2015, the revenue from the Group's overseas customers amounted to RMB3,225 million, representing a year-on-year decrease of 14.9% and accounted for 4.0% of the total revenues. We proactively reallocated our resources in overseas market, continued to optimize business structure of overseas market, and further increased the proportion of overseas revenue generated from turnkey projects. The Group also utilized various financial instruments, such as accounts receivable factoring and forward foreign exchange rate lock-in to hedge against overseas funding and exchange rate risk.

The Group closely monitored national "One Belt, One Road" Initiative and the "10 Major Plans of Sino-African Cooperation", organized "China-Africa ICT Partnership Forum" in South Africa, facilitated the signing of the Memorandum of Understanding on the Joint Partnership and Cooperation on the Acceleration of Development of Infrastructure for Information and Communications Technologies in East Africa among Ministry of Industry and Information Technology of the PRC , International Telecommunication Union and Ministry of Communications of five East African countries, and also proactively initiated and pushed ahead the "China-Africa Partnership Program in Trans Africa Information Superhighway" Project. This project has become a key Sino-foreign cooperative project supported by the PRC government and has been marked as the 2016 key project of Ministry of Industry and Information Technology of the PRC, which offered a new opportunity for breakthrough in scale development in overseas business.
Q6. How were the development of TIS, BPO and ACO businesses in 2015?
Revenue from TIS services amounted to RMB39,209 million, representing a year-on-year growth of 15.3% and accounted for 48.4% of the total revenues. Among that, the revenue of TIS services from China Telecom recorded a rapid year-on-year growth of 33.7%. Besides, revenue of TIS services from domestic telecommunications operator customers other than China Telecom remained relatively stable as the Group innovated its traditional sales and marketing model, fully captured the new business opportunities from the Tower Company and the new cooperation relationship and tender model of domestic telecommunications operator customers and increased its market share. The Group also continued to expand the domestic non-operator market, and TIS revenue from such customers recorded a year-on-year increase of 12.9%.

Revenue from BPO services amounted to RMB33,014 million, representing a year-on-year growth of 5.8% and accounted for 40.8% of the total revenues. The Group continued to optimize business structure and identified new drivers for future development while controlling the growth of businesses with low efficiency. The Group intensified its efforts in expanding network maintenance business and the revenue of such business grew by over 18% for two consecutive years. In 2015, the Group received the "5A" logistics qualification certificate, being the only enterprise in the domestic telecommunications industry which has obtained such certificate, and set up and operated China Comservice Supply Chain Management Company Ltd., to capitalize on the potential sub-business within the distribution business, and revenue from supply chain services recorded a year-on-year growth of 10.9%.

Revenue from ACO services amounted to RMB8,737 million, representing a year-on-year growth of 9.9% and accounted for 10.8% of the total revenues. The Group focused on customers' demand in informatization services and dedicated in the promotion of six major group-level products (smart city, smart security, smart industrial park, intelligent building, cloud computing services and e-certification), and revenue from the key businesses under ACO services (system integration, software development and system support, and value added services) achieved a year-on-year growth of 9.5%. We took initiatives for innovation in the ACO segment and achieved breakthroughs in projects such as information security, e-commerce, big data and cloud computing, etc.
Q7. What is the dividend policy of the Company?
The Company has been devoted to maintaining a relatively stable and sustainable dividend, and increase return to our shareholders in consideration of our results performance.

The Board has proposed to distribute a final dividend of RMB0.1011 per share for the financial year ended 31 December 2015, representing a dividend payout ratio of 30%. Moreover, in view of the Group's outstanding operating results and free cash flow for the year and its confidence in future development, the Board has proposed to distribute a special dividend of RMB0.0101 per share for 2015. Taking into consideration the above factors, the Company's total dividend for 2015 is RMB0.1112 per share, representing a year-on-year growth of 19.4%.

Basic Information

Q1. What kind of Company is China Comservice?
China Comservice (China Communications Services Corporation Limited) is a leading service provider in the informatization sector in the PRC, in commitment of "building world-class networks for the informatization services", providing integrated support services in the informatization sector. It is also the largest telecommunications infrastructure service provider in the PRC. Our services include telecommunications infrastructure services (TIS) covering design, construction, and project supervision and management; business outsourcing services (BPO) covering management of infrastructure for information technology, distribution of telecommunications services and products, and general facilities management; applications, content and other services (ACO) covering system integration, software development and system support, value-added services and other services. (Please refer to "Corporate Profile" and "History" for more details)
Q2. When was China Comservice listed?
The Company was listed on the Stock Exchange of Hong Kong on December 8, 2006. The offering price was HK$2.20 per share. (Please refer to "Corporate Information" for more details)
Q3. Who are the major customers of China Comservice?
All major telecommunications operators in China, namely, China Telecommunications Corporation ("China Telecom"), China Mobile Communications Corporation ("China Mobile") , China United Network Communications Group Company Limited ("China Unicom"), and China Tower Corporation Limited are our customers. We also provide services to domestic non-operator customers and overseas customers. In 2015, revenue from domestic telecommunications operator customers accounted for 67.7% of total revenues, revenue from domestic non-operator customers accounted for 28.3% of total revenues and revenue from overseas customers accounted for 4.0% of total revenues.

While further developing domestic telecommunications operator market, the Group has also endeavored to expand the domestic non-operator market. The Group proactively provides services, such as smart cities solutions, municipal infrastructure, intelligence building and cloud computing data center construction, to key customers such as government agencies and customers in the industries of construction and property, transportation, electricity etc.

Other than China, the Group's business also covers dozens of countries and regions globally, and its overseas customers are mainly located in the emerging markets including Africa, the Middle East and Southeast Asia.
Q4. Who are the major shareholders of China Comservice?
China Telecommunications Corporation is our controlling shareholder which holds 3,559 million domestic shares, representing 51.4% of our total issued shares. In addition, China Mobile Communications Corporation, China United Network Communications Group Company Limited and China National Postal and Telecommunications Appliances Corporation hold 608 million, 236 million and 131 million domestic shares, representing 8.8%, 3.4% and 1.9% of total issued shares respectively. The public holding is 2,391 million H share, representing 34.5% of our total issued shares. (Please refer to "Shareholding Structure" for more details)
Q5. What are the telecommunications infrastructure services (TIS) provided by China
       Comservice?
The Group is the largest telecommunications infrastructure service group in the PRC, providing a full range of telecommunications infrastructure services to telecommunications operators in China and overseas. These services include planning, design, construction and project supervision for fixed line, mobile, broadband and support systems. The Group also provides integrated solutions for ancillary communications networks and integrated informatization solutions for domestic non-operator customers such as government agencies, industrial customers and SME's, as well as overseas customers. (Please refer to "Business Overview" for more details)
Q6. What is the distribution service under Business Process Outsourcing (BPO) Service?
Distribution service means distribution of telecommunications services and products. The distribution services of the Group include the wholesale and distribution of communications machineries and handsets, logistics, procurement agency services. Our major customers are telecommunications operators, telecommunications equipment manufacturers, government agencies and medium to large-sized enterprises. (Please refer to "Business Overview" for more details)

As an integrated support service provider, our provision of distribution service enables us to cover both front end and back end services all along the value chain of telecommunications operator customers. This helps us to provide integrated services serving all aspects of the value chain, strengthen our competitive advantage of comprehensive one-stop service provision and promote our service value, therefore improving our customer loyalty and benefiting our long term business development.
Q7. What is the ACO service?
ACO means Applications, Content and Other services. The Group provides system integration, software development, system operation and maintenance support, value-added services to the domestic telecommunications operators, industrial customers and etc. (Please refer to "Business Overview" for more details)
Q8. Does the Company provide share options to its employees?
As a long term incentive and according to the regulations of the government, our Company adopted a share appreciation rights (SAR) scheme to align the interests of target employees with the Company. Under the scheme, a SAR constitutes the right to receive an amount of cash equivalent to the appreciation, if any, in the fair market value of an H share of our Company and the exercise price of the SARs. No shares will be issued under the scheme; accordingly, the shareholding of the shareholders of the Company will not be diluted by any grant of SARs.

Last Updated: 3 Jun 2016